##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the quarterly period ended May 31, 2006
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition periodto
 Commission File Number 000-29883
 Impreso, Inc.
  Delaware
    
    75-2849585(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 652 Southwestern Boulevard
Coppell, Texas 75019
 (972) 462-0100
 þ o
  o o þ
 o þ




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##### 



IMPRESO, INC. AND SUBSIDIARIES
FORM 10-Q
May 31, 2006
  
 INDEX
 Page NumberPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed
Consolidated Financial Statements:Interim Condensed
Consolidated Balance Sheets as of May 31, 2006
     (Unaudited) and August 31, 2005
    
    1Interim Condensed
Consolidated Statements of Operations for the
Three and Nine Months Ended May 31, 2006 and May 31, 2005
     (Unaudited)
    
    3Interim Condensed
Consolidated Statements of Cash Flows for the
Three and Nine Months Ended May 31, 2006 and May 31, 2005
     (Unaudited)
    
    4Notes to Interim Condensed Consolidated Financial Statements
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial  Condition and Results of Operations
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    18Item 4.
    
    Controls and Procedures
    
    18PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    19Item 3.
    
    Defaults upon Senior Securities
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    19Item 5.
    
    Other Information
    
    19Item 6.
    
    Exhibits
    
    19SIGNATURES
    
    20INDEX TO EXHIBITSCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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IMPRESO, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
 ASSETS
  May 31,
    
    
    August 31,2006
    
    
    2005Current assets:Trade accounts receivable, net of allowance for doubtful accounts of
$1,026,941 May 31, 2006 and $1,414,042 as of August 31, 2005
    
    $
    8,556,439
    
    
    $
    8,996,319Receivable, IRS
    
    
    1,221,532
    
    
    
    1,255,294Inventories, net of reserves
    
    
    15,163,853
    
    
    
    16,753,921Prepaid expenses and other
    
    
    360,044
    
    
    
    217,183Assets held for sale
    
    
    1,278,872
    
    
    
    1,278,872Deferred income tax assets
    
    
    674,456
    
    
    
    828,092Total current assets
    
    
    27,255,196
    
    
    
    29,329,681Property, plant and equipment, at cost
    
    
    27,198,509
    
    
    
    27,174,188Less-Accumulated depreciation
    
    
    (15,779,800
    )
    
    
    (14,784,634
    )Net property, plant and equipment
    
    
    11,418,709
    
    
    
    12,389,554Noncurrent assetsOther assets
    
    
    70,671
    
    
    
    74,183Deferred income tax assets
    
    
    351,813
    
    
    
    0Total noncurrent assets
    
    
    422,484
    
    
    
    74,183Total assets
    
    $
    39,096,389
    
    
    $
    41,793,418
  1




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##### Table of Contents



IMPRESO, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
 LIABILITIES AND STOCKHOLDERS EQUITY
 May 31,
    
    
    August 31,2006
    
    
    2005Current liabilities:Accounts payable
    
    $
    8,475,657
    
    
    $
    8,182,928Accrued liabilities
    
    
    876,402
    
    
    
    796,834Accrued commissions
    
    
    1,002,255
    
    
    
    954,231Current maturities of long-term debt
    
    
    1,103,187
    
    
    
    1,718,028Line of credit
    
    
    6,029,632
    
    
    
    6,306,354Current maturities of prepetition debt
    
    
    8,909
    
    
    
    8,684Total current liabilities
    
    
    17,496,042
    
    
    
    17,967,059Deferred income tax liability
    
    
    0
    
    
    
    295,016Deferred gain
    
    
    483,770
    
    
    
    611,826Long-term debt, net of current maturities
    
    
    6,772,959
    
    
    
    7,562,876Long-term portion of prepetition debt, net of current maturities
    
    
    202,045
    
    
    
    211,485Total liabilities
    
    
    24,954,816
    
    
    
    26,648,262Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized;
    
    
    0
    
    
    
    00 shares issued and outstandingCommon stock, $.01 par value; 15,000,000 shares authorized;
    
    
    52,928
    
    
    
    52,9285,292,780 issued and 5,278,780 outstandingTreasury stock (14,000 shares, at cost)
    
    
    (38,892
    )
    
    
    (38,892
    )Additional paid-in capital
    
    
    6,353,656
    
    
    
    6,353,656Retained earnings
    
    
    7,773,881
    
    
    
    8,777,464Total stockholders equity
    
    
    14,141,573
    
    
    
    15,145,156Total liabilities and stockholders equity
    
    $
    39,096,389
    
    
    $
    41,793,418
  2




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IMPRESO, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    17,842,095
    
    
    $
    19,829,734
    
    
    $
    51,801,515
    
    
    $
    58,435,505Cost of sales
    
    
    15,741,361
    
    
    
    18,733,138
    
    
    
    46,855,162
    
    
    
    55,782,864Gross profit
    
    
    2,100,734
    
    
    
    1,096,596
    
    
    
    4,946,353
    
    
    
    2,652,641Gain on sale of assets
    
    
    (40,866
    )
    
    
    (42,685
    )
    
    
    (136,350
    )
    
    
    (142,285
    )Embezzlement recovery
    
    
    0
    
    
    
    0
    
    
    
    (50
    )
    
    
    (290,840
    )Selling, general and administrative expense
    
    
    1,878,242
    
    
    
    2,220,005
    
    
    
    5,624,900
    
    
    
    6,728,183Operating income (loss)
    
    
    263,358
    
    
    
    (1,080,724
    )
    
    
    (542,147
    )
    
    
    (3,642,417
    )Other expenses (income):Interest expense
    
    
    281,220
    
    
    
    322,641
    
    
    
    860,987
    
    
    
    900,903Extinguishment of debt
    
    
    0
    
    
    
    (489,645
    )
    
    
    0
    
    
    
    (489,645
    )Other expense
(income), net
    
    
    49,352
    
    
    
    (65,384
    )
    
    
    70,642
    
    
    
    (285,662
    )Total other expense
    
    
    330,572
    
    
    
    (232,388
    )
    
    
    931,629
    
    
    
    125,596Loss before income tax expense
    
    
    (67,214
    )
    
    
    (848,336
    )
    
    
    (1,473,776
    )
    
    
    (3,768,013
    )Income tax (benefit) expense:Current
    
    
    10,500
    
    
    
    (407,828
    )
    
    
    23,000
    
    
    
    (1,629,201
    )Deferred
    
    
    (25,168
    )
    
    
    133,138
    
    
    
    (493,193
    )
    
    
    403,890Total income tax benefit
    
    
    (14,668
    )
    
    
    (274,690
    )
    
    
    (470,193
    )
    
    
    (1,225,311
    )Net loss
    
    $
    (52,546
    )
    
    $
    (573,646
    )
    
    $
    (1,003,583
    )
    
    $
    (2,542,702
    )Net loss per common share
(basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    (0.19
    )
    
    $
    (0.48
    )Weighted average shares outstanding
(basic and diluted)
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
    
    
    
    5,278,780
  3




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IMPRESO, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedMay 31,
    
    
    May 31,2006
    
    
    2005Cash Flows From Operating ActivitiesNet loss
    
    
    ($1,003,583
    )
    
    
    ($2,542,702
    )Adjustments to reconcile net loss to net cash
provided by operating activities-Depreciation and amortization
    
    
    1,084,320
    
    
    
    1,116,483Decrease in provision for bad debt expense
    
    
    679,564
    
    
    
    (64,917
    )(Decrease) increase in provision for losses of inventory
    
    
    (13,277
    )
    
    
    99,906Gain on sale of property, plant and equipment
    
    
    (8,294
    )
    
    
    0Change in deferred gain on sale of property
    
    
    (128,056
    )
    
    
    (142,284
    )(Increase) decrease in deferred income tax (assets) liabilities
    
    
    (493,193
    )
    
    
    403,890Extinguishment of Debt
    
    
    0
    
    
    
    489,645Decrease in
trade accounts receivable
    
    
    1,119,444
    
    
    
    4,997,994Decrease (increase) in income tax receivable
    
    
    33,762
    
    
    
    (1,746,880
    )Decrease in inventory
    
    
    1,603,345
    
    
    
    1,586,139Increase in prepaid expenses and other
    
    
    (142,861
    )
    
    
    (467,656
    )Decrease in non current assets
    
    
    3,512
    
    
    
    6,424Increase (decrease) in accounts payable
    
    
    292,729
    
    
    
    (3,374,896
    )Increase (decrease) in accrued liabilities
    
    
    127,592
    
    
    
    (536,836
    )Net cash provided by (used) in operating
activities
    
    
    3,155,004
    
    
    
    (175,690
    )Cash Flows From Investing Activities:Additions to property, plant, and equipment
    
    
    (125,681
    )
    
    
    (927,195
    )Proceeds from sale of property, plant & equipment
    
    
    20,500
    
    
    
    40,145Net cash used in investing activities
    
    
    (105,181
    )
    
    
    (887,050
    )Cash Flows From Financing Activities:Net (payments) borrowings on line of credit
    
    
    (276,722
    )
    
    
    1,395,025Principal payments on prepetition debt
    
    
    (9,215
    )
    
    
    (7,899
    )Principal (payments) borrowings on postpetition debt
    
    
    (1,404,758
    )
    
    
    130,807Net cash (used in) provided by financing
activities
    
    
    (1,690,695
    )
    
    
    1,517,933Net increase in cash and cash equivalents
    
    
    1,359,128
    
    
    
    455,193Cash and cash equivalents, beginning of period
    
    
    0
    
    
    
    173,313Cash and cash equivalents, end of period
    
    $
    1,359,128
    
    
    $
    628,506
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IMPRESO, INC. AND SUBSIDIARIES
 
 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. ORGANIZATION AND NATURE OF BUSINESS
  2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   3. NEW ACCOUNTING PRONOUNCEMENTS
   5




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4. RECLASSIFICATIONS
  5. INVENTORIES
   May 31, 2006
    
    August 31, 2005Finished goods
    
    $
    8,530,154
    
    
    $
    9,408,114Raw materials
    
    
    5,997,962
    
    
    
    6,327,885Supplies
    
    
    981,431
    
    
    
    1,385,293Work-in-process
    
    
    103,633
    
    
    
    95,233Allowance for obsolete inventory
    
    
    (449,327
    )
    
    
    (462,604
    )Total
    
    $
    15,163,853
    
    
    $
    16,753,921
 6




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6. ACCOUNTING FOR LONG-LIVED ASSETS
     7. LONG-TERM DEBT AND LINE OF CREDIT :
  May 31,
    
    August 31,2006
    
    2005Line of Credit with a commercial financial corporation under
revolving credit line, Maturing November 2007, secured by
inventories, trade accounts receivable, equipment, and goodwill
associated with TSTs trademark IMPRESO (no value on
financial statements), interest payable monthly at prime plus
0.25% (8.0% and 6.50%, as of May 31, 2006 and August 31, 2005,
respectively).
    
    $
    6,029,632
    
    
    $
    6,306,354Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$4,457 (including interest at 7.25%), maturing November 2008.
    
    
    160,001
    
    
    
    184,645Note payable to a commercial financial corporation, secured by
real property and equipment, payable in monthly installments of
$10,843 (including interest at 8.50%), maturing July 2010.
Revolving lenders blanket lien subordinated to notes
collateral.
    
    
    454,202
    
    
    
    511,580Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $2,834
(including interest at 5.5%), maturing October 2010.
    
    
    131,633
    
    
    
    149,972Notes payable to various commercial financial corporations,
secured by equipment, interest rates ranging from 0% to 7.897%,
maturing at various dates from June 2006 through July 2008.
    
    
    62,720
    
    
    
    96,428
 7




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May 31,
    
    August 31,2006
    
    2005Notes payable to a commercial financial corporation, secured by
real property and a personal guarantee by the trustee of a
trust which is a principal stockholder of the Company, payable
in monthly installments of $13,761 (including interest at 8%),
maturing March 2011.
    
    
    1,134,273
    
    
    
    1,182,378Note payable to a commercial financial corporation, secured by
real property, payable in monthly installments of $40,454.51,
including interest at prime plus 1.125% with a cap of 7.5%
(7.5% and 7.375%, respectively as of May 31, 2006 and August
31, 2005) maturing September 2009.
    
    
    4,208,470
    
    
    
    4,318,812Note payable to a commercial financial corporation, secured by
equipment, payable in monthly installments of $17,857 including
interest at a variable rate equal to 30-day LIBOR plus 350
basis points, (8.11% and 6.7%, respectively as of May 31, 2006
and August 31, 2005), maturing February 2009.
    
    
    589,286
    
    
    
    767,857Acquisition notes payable, unsecured, payable in monthly
installments of $16,666, no interest, maturing February 2007.
    
    
    217,593
    
    
    
    296,463Capital lease payable to a commercial financial corporation,
secured by equipment, payable in monthly installments of
$17,910, including interest at 8.5%, maturing October 2011. In
October 2005, a portion of the collateral, a letter of credit,
was applied to the lease to reduce the principal balance.
    
    
    917,968
    
    
    
    1,772,769Prepetition-Note payable to a commercial financial corporation, secured by
real property and equipment and a personal guarantee by the
trustee of a trust which is a principal stockholder of the
Company, payable in monthly installments of $1,461 (including
interest at 4%), maturing April 2008.
    
    
    210,954
    
    
    
    220,169Total
    
    $
    14,116,732
    
    
    $
    15,807,427Less Current Maturities
    
    
    (7,141,728
    )
    
    
    (8,033,066
    )Long-Term Debt
    
    $
    6,975,004
    
    
    $
    7,774,361
    8




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8. SUPPLEMENTAL CASH FLOW INFORMATION
 Three Months Ended
    
    Nine Months EndedMay 31,
    
    May 31,2006
    
    2005
    
    2006
    
    2005Cash paid during the period for:Interest
    
    $
    281,220
    
    
    $
    318,030
    
    
    $
    860,987
    
    
    $
    885,386Income taxes
    
    $
    21,638
    
    
    $
    50,724
    
    
    $
    24,843
    
    
    $
    120,724
  9. LEGAL MATTERS
     9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
       10




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Nine Months Ended May 31, 2006
    
    Nine Months Ended May 31, 2005AMOUNT
    
    PERCENT
    
    AMOUNT
    
    PERCENTNET SALES BY INDUSTRY SEGMENTHardcopy imaging products
    
    $
    51,314,686
    
    
    
    99.06
    %
    
    $
    58,435,505
    
    
    
    100.00
    %Bottled water
    
    
    486,829
    
    
    
    0.94
    
    
    
    0.00
    
    
    
    0.00Total
    
    
    51,801,515
    
    
    
    100.00
    
    
    
    58,435,505
    
    
    
    100.00PRE TAX (LOSS) PROFIT FROM
CONTINUING OPERATIONSHardcopy imaging products
    
    
    (1,140,435
    )
    
    
    77.38
    
    
    
    (3,768,013
    )
    
    
    100.00Bottled water
    
    
    (333,341
    )
    
    
    22.62
    
    
    
    0.00
    
    
    
    0.00Total
    
    
    (1,473,776
    )
    
    
    100.00
    
    
    
    (3,768,013
    )
    
    
    100.00
 Three Months Ended May 31,2006
    
    Three Months Ended May 31,2005AMOUNT
    
    PERCENT
    
    AMOUNT
    
    PERCENTNET SALES BY INDUSTRY SEGMENTHardcopy imaging products
    
    
    17,704,937
    
    
    
    99.23
    
    
    
    19,829,734
    
    
    
    100.00Bottled water
    
    
    137,158
    
    
    
    0.77
    
    
    
    0.00
    
    
    
    0.00Total
    
    
    17,842,095
    
    
    
    100.00
    
    
    
    19,829,734
    
    
    
    100.00PRE TAX (LOSS) PROFIT FROM
CONTINUING OPERATIONSHardcopy imaging products
    
    
    (7,631
    )
    
    
    11.35
    
    
    
    (848,336
    )
    
    
    100.00Bottled water
    
    
    (59,583
    )
    
    
    88.65
    
    
    
    0.00
    
    
    
    0.00Total
    
    
    (67,214
    )
    
    
    100.00
    
    
    
    (848,336
    )
    
    
    100.00
 12




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As Of May 31, 2006
    
    
    As Of August 31, 2005TOTAL ASSETS BY INDUSTRY
SEGMENTHardcopy imaging products
    
    
    36,648,617
    
    
    
    93.74
    
    
    
    39,043,670
    
    
    
    93.42Bottled water
    
    
    2,447,772
    
    
    
    6.26
    
    
    
    2,749,748
    
    
    
    6.58Total
    
    $
    39,096,389
    
    
    
    100.00
    %
    
    $
    41,793,418
    
    
    
    100.00
    %
 Results of Operations for the Interim Periods Ended May 31, 2006 and May 31, 2005.
      13




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Liquidity and Capital Resources
         14




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15




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16




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Seasonality
  17




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Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
    18




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PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Item 3. Defaults upon Senior Securities.
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 
 Item 5. Other Information.
 
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibits31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 19




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SIGNATURES
   Impreso, Inc.(Registrant)/s/ Marshall D. Sorokwasz

Marshall D. SorokwaszChairman of the Board, Chief
Executive Officer, President,
and Director/s/ Susan M. Atkins

Susan M. AtkinsChief Financial Officer
and Vice President
 20